Happy Bean Inc. operates a chain of lunch shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $ $8,740,000.$ Expected annual net cash inflows are $ $1,650,000$ with zero residual value at the end of ten years. Under Plan$$ B$,$ Happy Bean would open three larger shops at a cost of $ $8,240,000.$ This plan is expected to generate net cash inflows of $ $1,250,000$ per year for ten $$years$,$ the estimated life of the properties. Estimated residual value is $ $1,000,000.$ Happy Bean uses$$ straight$-$line depreciation and requires an annual return of$10\%1.$Compute the payback$$ period, the$$ ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting$$ models?

$2.$

Which expansion plan should Happy Bean $$choose$?$ Why?

$3.$

Estimate Plan$$ A$\text{'}$s IRR. How does the IRR compare with the$$ company's required rate of$$ return?